Presentation to the Tidewater Builders Association

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Presentation to the Tidewater Builders Association

• By John W. Whaley
• Deputy Executive Director, Economics
• Hampton Roads Planning District Commission
• February 2006

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Topics

• Economic Indicators
• 2006 Forecast
• Defense Issues
• Impact of Housing Project
• Housing Economics
• Forecasting Permits
• Impact of Construction Industry

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Economic Indicators
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The U.S. Economy
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The U.S. Economy Continued to Grow in 2005
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The Hampton Roads Economy
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Regional Employment Continued to Grow but at a
Slower Rate
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The U.S. Economy Has Been Slow to Create Jobs
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The Taxable Sales Growth Rate Slowed
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Auto Sales Have Weakened
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The Number of Homes Sold in Hampton Roads Has
Begun to Decline
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Residential Construction Has Slowed
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Home Prices In Hampton Roads Have Increased
Faster than Inflation Since 2001
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HR Home Prices Have Outpaced the U.S. Increase
for the Past Two Years
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The Average Selling Price of Area Housing
Increased Because ..

• Demand Was Strong
• Low Mortgage Rates
• Military Pay Increases
• Innovative Financing
• Homes of Higher Value Were Constructed
• The Supply of Housing Was Slow to Respond to the
  Increase in Demand

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The Pace of New Home Construction Has Not
Responded to the Increase in Home Prices
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The Increase in Housing Values Has Driven Up the
Regional Cost of Living
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Forecast
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The Economy Will Slow Modestly in 2006 Due to

• Higher Interest Rates
• Slower Growth in Home Equity
• High Energy Costs
• High Consumer Debt
• Less Residential Construction
• Less Stimulus from the Defense Department

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Defense Sector Challenges
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1 Defense Spending Has Peaked
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2 Potential Relocation of Carriers

• Carrier John F. Kennedy may be retired
• Norfolk-based carrier could replace the JFK in
  Mayport
• Norfolk-based Carrier George Washington will be
  sent to Japan in 2008 (or elsewhere in the
  Pacific depending on distance to Taiwan)
• Cost of losing a carrier is large
• Carrier without air wing 225 million GRP
• Carrier battle group and air wing 980 million
  GRP

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3 BRAC Impacts

• Base Realignment and Closure Commissions decide
  on the future of domestic bases
• Current BRAC recommendations have been accepted
  by the President and Congress

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On-Base Employment Will Decline by Nearly 2,400
Jobs If Oceana Remains Open
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How Will BRAC Impact the Regional Economy?

• Used REMI Model
• Nations most powerful regional economic model
• Assumption
• Direct effects were allocated across five years
• Ten percent of the direct effect in 2007 22.5
  percent in each of the years from 2008 to 2011

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BRAC Impacts will be Large
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When Will Impacts be Felt?(Builddown/Carriers/BRA
C)

• 2006 slight impact
• 2007 modest impacts
• 2008 2011 largest impacts

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Two Scenarios2008 - 2011

• Best Case
• Lose 2400 on-base jobs
• Slower increase in defense spending

• Worst Case
• Lose 2400 on-base jobs
• Lose one/two carriers
• Close Oceana
• Large cuts in defense spending

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Impact of New Communities
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Impact of New Subdivision Population and
Employment
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Impact of New Subdivision Employment by Sector
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Impact of a New Subdivision City Gross Regional
Product
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Housing Economics
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The Change in Interest Rates and the Pace of
Local Economic Growth are Important Predictors of
Residential Construction in HR
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The End